What are the accounting issue(s) and the relevant components of the authoritative literature?
The case focuses on a sales agreement with multiple deliverables. The critical issue is determining whether there are separate units of accounting in the sales agreement. In other words, should the multiple deliverables be accounted for as one unit of accounting or as two or more separate units of accounting? Guidelines that assist with evaluating sales transactions that involve multiple deliverables can be found in subtopic 605-25, ‘‘Revenue Recognition—Multiple-Element
Arrangements,’’ in the Codification.
Requirement 2: What are the separate units of accounting in the sales agreement …show more content…
$95,000. If there is sufficient evidence to support selling the assembly line system without installation at that price, AOI should use a price of $95,000 for the assembly line system in the relative selling price method. Because AOI does not sell the installation services separately, it does not have VSOE of selling price for that unit of accounting.
Requirement 4: Now, assume that sufficient evidence exists to support the selling price of $95,000 for the assembly line system. However, there is some concern regarding the $12,000 charged for the installation services that AOI heard about from a prior customer. What type of analysis must be done related to the $12,000 price for installation services to decide whether it should be used to allocate revenue to the components in the sales agreement? Explain your answer.
As discussed in FASB ASC 605-25-30-6b, third-party evidence of selling price exists if the product or service is available to the customer from another vendor. The issue to consider is whether there is sufficient evidence to support the selling price for the